Kate Spade Overcomes Discount Pressures to Top Forecasts

An item from the Kate Spade
Kate Spade holiday collection Abigail sandals.

Handbag and accessories maker Kate Spade  & Co. is making strides in an otherwise tepid retail environment.

The New York-based brand said it is overcoming challenges — including soft tourism and off-price channel pressures — and was able to surpass forecasts in its third quarter, announced before the market open today.

Kate Spade said its Q3 revenues rose 14 percent, to $317 million, an increase of $39 million year-over-year. Adjusted revenues rose $41 million year-over-year. Those results beat estimates for revenues of $310 million. Third quarter 2016 direct-to-consumer comparable sales growth was 6.7 percent or flat excluding e-commerce.

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Net income was $30 million, or 23 cents per diluted share, a significant gain over the comparable period when net income was $5 million, or 4 cents per diluted share. Adjusted diluted EPS, at 13 cents, topped forecasts for diluted EPS of 8 cents.

“In the third quarter, several macroeconomic factors, including a challenging retail environment and continuing tourist headwinds, impacted our results,” said Kate Spade CEO Craig Leavitt in a statement. “That said, we are making solid progress on several strategies that are continuing to drive growth in our business, which is reflected in the consumer’s strong response to our collections at full price. We remain focused on the factors we can control as we continue to grow our business and execute our long-term strategy, maintaining our commitment to become a $4 billion business at retail.”

Despite the third-quarter win, Kate Spade president and COO George Carrara noted that the brand did experience some pressures in the off-price channel — although those were offset by increased spending controls.

“While gross margin pressures have increased in our off-price business, we were able to offset these conditions through strong expense controls,” Carrara said in a statement. “We expect that these efforts, which enabled us to achieve adjusted EBITDA margin expansion for the third quarter, will help us achieve our 2016 guidance. We remain confident in our long-term strategy.”

The firm reiterated its full-year guidance.

As of 9:15 a.m. ET today, Kate Spade’s shares had slipped nearly 7 percent, to $15.25, in premarket trading.